RICHARD J. HOLWELL, District Judge:
Plaintiff FR 8 Singapore Pte. Ltd. ("FR8") commenced this action on March 9, 2010 against defendants Albacore Maritime ("Albacore"), Prime Marine Corp., Prime Marine Management Inc., and PMC Holding Inc. (collectively, the "Prime Defendants") to compel the Prime Defendants to arbitrate FR8's claims in London as alter egos of Albacore. Defendants have moved to dismiss the complaint
For the purposes of this opinion, the following facts are taken as true.
On April 14, 2008, Albacore, a Marshall Islands corporation, entered into a Memorandum
Stathis Topouzoglou ("Topouzoglou"), a resident of Greece and one of Prime Management's directors, handled the negotiations for the defendants leading up to the MOA, along with the Prime Defendants' Greek counsel. (Suanes Decl. ¶ 9; Woods Decl. ¶ 5.) Roger Woods ("Woods"), a broker with FR8 Shipbrokers Ltd., whose primary office is in London, handled FR8's negotiations. (Woods Decl. ¶ 4.) In a March 28, 2008 e-mail, Woods provided a March 31 deadline to Topouzoglou by which the buyers' board of directors was to agree to the proposed terms of the MOA. (Bamford Decl. ¶ 6, Ex. 1.) Topouzoglou replied on March 31, 2008, indicating that the buyers' board of directors had approved the transaction. (Id. ¶ 7.) On April 1, 2008, Woods informed Topouzoglou that FR8's board of directors had also approved the transaction, and requested that Topouzoglou "advise the correct name of [the] company for the [MOA]." (Id. Ex. 3.) Another Prime Management employee, Michael Chalkias, informed FR8 on April 2, 2008 that the buyer would be Albacore, which had been incorporated that day. (See id. Ex. 4; Suanes Decl. ¶ 4.) Albacore and FR8 executed the MOA on April 14, 2008. (Suanes Decl. ¶ 4.) The agreement set the purchase price of the vessel at $58,500,000, and required a 10% security deposit, which Prime paid on April 16, 2008.
The MOA provides that it "shall be governed by and construed in accordance with English law and any dispute arising out of this Agreement shall be referred to arbitration in London. . . ." (Suanes Decl. Ex. B § 16.) Albacore and FR8 are signatories to the MOA; the Prime Defendants are not. (See Suanes Decl. Ex. B.)
Under the MOA, the vessel was to be delivered some time between May 1 and June 30, 2009. (Suanes Decl. Ex. B § 5(b).) Accordingly, FR8's English counsel, Mark Bamford ("Bamford"), and the Prime Defendants' Greek counsel, Constantinos Emmanuel ("Emmanuel") and Ekaterini Konidari ("Konidari"), exchanged drafts of the vessel delivery documents in April 2009. (Bamford Decl. ¶¶ 13-20, Exs. 5-9.) On April 30, 2009, Woods sent Topouzoglou a notice that the vessel would be delivered on May 11, 2009. (Id. Ex. 11.) The next day, however, Topouzoglou informed FR8 that because of the "global financial meltdown," Albacore's financing arrangements had been "torn
FR8 continued to proceed as though the closing for the transaction would occur on May 11, 2009. On May 6, 2009, Woods sent Topouzoglou a notice that the vessel would be delivered in five days. (Bamford Decl. Ex. 12.) The following day, Woods informed Konidari that the closing would be at the Marshall Islands registry in New York. (Id. Ex. 15.) Konidari then told Bamford and Woods that Emmanuel "will be probably attending the closing meeting on behalf of Buyers." (Id. Ex. 19.) Between May 8 and May 10, Woods and Bamford both arrived in New York to attend the closing. (Bamford Decl. ¶ 33; Woods Decl. ¶ 13.) On May 11, 2009, however, Emmanuel e-mailed Bamford to say that because FR8 "have yet to provide Buyers with a Notice of Readiness for delivery pursuant to line 56 of the MOA," he did not have to attend the closing. (Bamford Decl. Ex. 20.) Woods sent a Notice of Readiness that same day, and Bamford asserted that Albacore was contractually obligated to attend the closing, regardless of whether a Notice of Readiness had been provided. (Id. Exs. 21, 22.) Emmanuel did not come to New York.
On May 12, 2009, Topouzoglou attempted to invoke the force majeure clause of the MOA to terminate the agreement, citing the global financial crisis. (Bamford Decl. Ex. 23.) FR8 in turn accused the defendants of breaching the contract by failing to attend the closing meeting. (Bamford Decl. ¶ 43.) On June 25, 2009, FR8 instituted arbitration in London with Albacore only in accordance with the arbitration clause of the MOA. (Suanes Decl. ¶¶ 7-8.) This suit followed on March 9, 2010, seeking a judgment that the Prime Defendants are bound to Albacore's arbitration agreement as alter egos of Albacore, and a consequent order compelling the Prime Defendants to join Albacore in defending FR8's claims in the London arbitration.
FR8's complaint asserts two bases for subject matter jurisdiction in this case: diversity jurisdiction under 28 U.S.C. § 1332 and federal question jurisdiction under the Federal Arbitration Act (the "FAA"), 9 U.S.C. §§ 1, et seq., the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"), and legislation implementing the Convention, 9 U.S.C. §§ 201, et seq. Defendants contend that neither of these grounds provides subject matter jurisdiction.
FR8's first basis, diversity jurisdiction, plainly fails. The relevant statute confers jurisdiction on district courts in
28 U.S.C. § 1332(a). Here, there is no diversity because neither FR8 nor any of the defendants were incorporated in the United States, and it is not asserted that any party's principal place of business is in the United States; therefore, diversity jurisdiction fails because foreign corporations occupy both sides of the litigation. See Universal Licensing Corp. v. Paola del Lungo S.p.A, 293 F.3d 579, 581 (2d Cir.2002) ("For purposes of § 1332(a)(2) and (3), even if a corporation organized under the laws of a foreign nation maintains its principal place of business in a State, and is considered a citizen of that State, diversity is nonetheless defeated if another alien party is present on the other side of the litigation.") (internal quotation marks and alterations omitted).
As for FR8's second basis, defendants argue that the relevant provisions fail to provide subject matter jurisdiction for this court because FR8 is not a "party aggrieved" under section 4 of the FAA.
9 U.S.C. § 4. "Where there has been no refusal to arbitrate, . . . petitioner is not entitled to compel arbitration under Section 4. . . ." Jacobs v. USA Track Field, 374 F.3d 85, 89 (2d Cir.2004). On July 7, 2010, during the pendency of this suit, FR8 requested through counsel that the Prime Defendants participate in the London arbitration as if they were signatories and "agree to be joint and severally liable with Albacore." (Harwood Decl. Ex. 15.) The Prime Defendants refused on the grounds that they dispute alter ego liability. (Harwood Decl. Ex. 16.) Defendants contend that FR8 does not qualify as a party aggrieved because this exchange either failed to meet the MOA's contractual notice requirements or does not comprise a demand and refusal to arbitrate under the MOA. (Def.'s Reply at 6-7.)
Defendants' first ground for contesting jurisdiction under section 4 fails. The notice requirement of the MOA requires "[a]ll notices required to be given in accordance with this Agreement shall be in writing, by fax or e-mail and shall be addressed" to Prime Management's e-mail address, fax number, or address in Greece. (Suanes Decl. Ex. B § 18.) Defendants cannot defeat subject matter jurisdiction in this case simply because FR8 issued its demand to arbitrate to defendants' counsel rather than to the address specified in the MOA. Moreover, "notices required to be given in accordance with this Agreement" is best construed as referring to those
Defendants' second argument against section 4 jurisdiction has also fails. Generally, a party must make an unequivocal refusal to arbitrate in order to confer jurisdiction on the federal courts under section 4. See also PaineWebber Inc. v. Faragalli, 61 F.3d 1063, 1066 (3d Cir. 1995) ("[A]n action to compel arbitration under the FAA accrues only when the respondent unequivocally refuses to arbitrate, either by failing to comply with an arbitration demand or by otherwise unambiguously manifesting an intention not to arbitrate the subject matter of the dispute."). It is unclear to what extent section 4 applies in a case to compel non-signatories to arbitrate, and the parties have cited no case law that illuminates this point.
In a paradigmatic case, "[a] party has refused to arbitrate if it commences litigation or is ordered to arbitrate the dispute by the relevant arbitral authority and fails to do so." LAIF X SPRL v. Axtel, S.A. de C.V., 390 F.3d 194, 198 (2d Cir.2004) (internal quotation marks and brackets omitted). FR8 has not asserted that either circumstance exists in this case. The procedural posture of this case, however, differs from the typical arbitration paradigm. In the two cases cited by defendants in their motion to dismiss, Hartford Accident Indem. Co. v. Equitas Reinsurance Ltd., 200 F.Supp.2d 102 (D.Conn. 2002), and AES Gener, S.A. v. Compania Carbones del Cesar S.A., 08 Civ. 10407 (WHP), 2009 WL 2474192 (S.D.N.Y. Aug. 12, 2009), the parties were signatories to contracts with arbitration clauses. Here, however, the Prime Defendants are not signatories to the MOA, and their non-signatory status renders some of the inquiries made by the courts in Hartford Accident and AES inapplicable to the instant case.
For example, Hartford Accident focused on whether "the defendants still had an opportunity to accept or reject Hartford's demand to arbitrate before Hartford filed its amended complaint." Hartford Accident, 200 F.Supp.2d at 109. There, the plaintiffs had made a demand by letter requesting that the defendants "name their arbitrator within thirty days of the date of this demand." Id. at 106. Here, a similar demand would be nonsensical. The MOA's arbitration clause identifies the London Maritime Arbitrators Association ("LMAA") Terms as those which govern arbitration between the parties. The LMAA Terms, "for the purpose of determining on what date arbitral proceedings are to be regarded as having commenced," refers to section 14 of England's Arbitration Act 1996, which provides in relevant part:
Arbitration Act, 1996, c. 23, § 14(4) (Eng.). Because arbitration is already underway between Albacore and FR8, such a notice would be unwarranted in this case, and it seems irrational to require adherence to such formalism to confer subject matter jurisdiction on this Court.
Defendants have also moved to dismiss FR8's claim for failure to state a claim under Fed.R.Civ.P. 12(b)(6). On a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) the Court accepts as true all factual allegations in the complaint and draws all reasonable inferences in the plaintiff's favor. In re DDAVP Direct Purchaser Antitrust Litigation, 585 F.3d 677, 692 (2d Cir.2009). The complaint's allegations, however, "must be enough to raise a right of relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Only a "plausible claim for relief survives a motion to dismiss." LaFaro v. New York Cardiothoracic Group, PLLC, 570 F.3d 471, 476 (2d Cir.2009). Thus courts are "not bound to accept as true a legal conclusion couched as a factual allegation," and "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949-50, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted).
Before addressing whether FR8's complaint measures up to the standard articulated by Twombly and Iqbal, it is necessary to address the parties' contentions about which law applies. In this case, the choice-of-law question affects the elements FR8 must plead in order to maintain a veil-piercing or alter-ego claim. Defendants argue that the law of the Marshall Islands as the place of incorporation governs that inquiry, or, in the alternative, that English law governs because of the MOA's choice-of-law clause. (See Def's Mem. at 12-13; Def's Reply at 7 n. 2.) The law of the Marshall Islands, in turn, looks to Delaware law, which defendants contend requires proof of fraud to pierce the corporate veil; they argue therefore that "Plaintiff must show that the whole purpose of the corporation was to commit a fraud" to maintain their claim. (Def.'s Mem. at 14.) Under English law, defendants assert that piercing Albacore's veil would be "virtually impossible." (Id. at 4.) In contrast, FR8 argues that federal common law governs the question of veil-piercing in the context of an action to compel arbitration under the Convention. (See Pl.'s Opp'n 6-8.)
In support of their argument that Marshall Islands law applies, defendants cite Kalb Voorhis Co. v. American Financial Corp., 8 F.3d 130 (2d Cir.1993). There, the court applied choice-of-law principles of the forum state, New York, to hold that "[t]he law of the state of incorporation determines when the corporate form will be disregarded and liability will be imposed on shareholders." Id. at 132. As noted above, all the companies in Albacore's line of ownership are Marshall Islands corporations. But FR8 correctly points out that in Kalb, the court applied New York's choice of law doctrine to a state law veil-piercing claim. (See Pl.'s Opp'n at 7); Kalb, 8 F.3d at 132-33. The Second Circuit disavowed this approach in Convention cases in Smith/Enron Cogeneration Limited Partnership, Inc. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88 (2d Cir.1999). There, although the respondent "suggest[ed] that we must use New York's choice of law to determine the applicable body of contract law," the court found that to do so would "introduce a degree of parochialism and uncertainty into international arbitration that would subvert the goal of simplifying and unifying international arbitration law." Smith/Enron, 198 F.3d at 96. The court noted that "as this is a federal question case . . . we see no persuasive reason to apply the [choice-of-law rules] of New York simply because it is the forum of this litigation." Id. Therefore, it is inappropriate in this case to apply New York choice-of-law principles to hold that Marshall Islands law governs the question of veil-piercing.
The remaining candidates, then, are English law and federal common law. Where the choice of law in a Convention case is between the law specified by the choice-of-law clause and federal common law, Second Circuit precedent has been less than crystal clear. See Republic of Ecuador v. ChevronTexaco Corp., 376 F.Supp.2d 334, 354 (S.D.N.Y.2005) (noting the apparent conflict in Second Circuit law).
Two of the Second Circuit's decisions principally inform the analysis. First, in Motorola Credit Corp. v. Uzan, 388 F.3d 39 (2d Cir.2004), plaintiffs Motorola Credit Corporation ("Motorola") and Nokia Corporation ("Nokia") entered into various financing agreements with non-party companies Telsim and Rumeli Telefon. Id. at 43. Each agreement provided that it would be governed by and construed in accordance with Swiss law. Id. Both of the non-party companies were controlled by the Uzan family of Turkey, defendants in the action, but the Uzans were not signatories to the agreement. See id. at 43, 49. Defendants sought to compel arbitration under the Convention, asserting that federal common law controls issues of arbitrability while plaintiffs asserted that Swiss law controlled the issue because of the choice-of-law clause. Id. at 50. The Motorola court held that Swiss law, not federal common law, applied pursuant to the choice-of-law clause. Id. at 50-51.
In contrast, Sarhank Group v. Oracle Corp., 404 F.3d 657 (2d Cir.2005), discounted the choice-of-law clause in the contract and instead applied federal common law to the question of arbitrability. In Sarhank, Oracle Systems, Inc. ("Systems") entered into a contract with Sarhank Group ("Sarhank"), an Egyptian corporation. Id. at 658. The contract contained an arbitration clause submitting all disputes between Systems and Sarhank for arbitration under Egyptian law. Id. Sarhank won an arbitration in which the arbitration panel, purporting to apply Egyptian law, deemed not only Systems but also its parent corporation,
Thus, it appears that Sarhank counsels against honoring the choice-of-law clause in Convention cases when deciding the question of arbitrability, while Motorola counsels for honoring the clause. The Court chooses to follow Motorola in this case for two reasons. First, it is unclear that the two cases do, in reality, conflict, as Sarhank may be distinguishable from this case. Second, to the extent the two cases do conflict, the disharmony should be resolved in a way that allows the application of the choice-of-law clause in this case.
Although Republic of Ecuador considered the two cases to be in apparent conflict with each other, a closer examination of Sarhank's reasons for applying American federal arbitration law instead of Egyptian law reveals that Sarhank may be distinguishable. The procedural posture of Sarhank was a motion to confirm a foreign arbitral award under the Convention, not one to compel arbitration. Article V(2) of the Convention "provides that a United States court is not required to enforce an agreement if its subject matter is not capable of arbitration in the United States or if enforcement of the arbitral award would be contrary to American public policy." Sarhank, 404 F.3d at 661 (internal citations omitted). "Federal arbitration law controls in deciding this issue." Id. When Sarhank applied American law to the question of arbitrability, therefore, it did so in the specific context of addressing Article V defenses to enforcement of awards under the Convention. See id. at 661-62. That narrow holding, therefore, would not have wider applicability to actions such as this one, in which FR8 seeks to compel arbitration and Article V defenses do not apply.
Furthermore, even if there were a conflict between Sarhank and Motorola, it is far from clear that it should be resolved in favor of applying American law in this case. Republic of Ecuador held that "[t]he most reasonable way to reconcile Motorola and Sarhank is to conclude that a choice-of-law clause will govern where a nonsignatory to a particular arbitration agreement seeks to enforce the agreement against a signatory, but not where a signatory seeks to enforce the agreement against a nonsignatory." Republic of Ecuador, 376 F.Supp.2d at 355. The court justified this reading by noting:
Republic of Ecuador, 376 F.Supp.2d at 355. The court noted that "[o]ne might argue that the holding of Sarhank is inapplicable to this case because that holding dealt with the circumstances under
Republic of Ecuador's conclusion, however, appears to be unwarranted. First, the "anti-parochialism" principle of Smith/Enron is one that refers to the application of state choice-of-law rules in Convention contexts, not one that counsels against the recognition of contractual choice-of-law clauses. See Smith/Enron, 198 F.3d at 96. Second, although the signatory/nonsignatory distinction is certainly "significant," that does not end the inquiry—it must be significant in a way that is relevant to whether a choice-of-law clause should govern the question of arbitrability. Although Republic of Ecuador argues that where a signatory seeks to compel a non-signatory to arbitrate, application of the choice-of-law clause could be "unfair to the nonsignatory," Republic of Ecuador, 376 F.Supp.2d at 355, this is only true when federal common law is more protective of the non-signatory than the law specified by the choice-of-law clause. In this case, however, it is the non-signatory being compelled to arbitrate who seeks the protection of the choice-of-law clause, while the signatory, FR8, seeks to avoid the choice-of-law clause in the very agreement it seeks to enforce. Motorola's rationale that if parties "wish to invoke the arbitration clauses in the agreements at issue, they must also accept the . . . choice-of-law clauses that govern those agreements" seems more applicable to FR8 in this situation than does a blanket rule dividing signatories and non-signatories. See Motorola, 388 F.3d at 51. Indeed, the signatory/nonsignatory distinction appears nowhere in Motorola's reasoning. Instead, Motorola reasoned that:
Motorola, 388 F.3d at 51. If the Court were to adhere to Republic of Ecuador's proposed reconciliation, it would give the plaintiff the opportunity to forum-shop. Plaintiffs who seek to compel a non-signatory to arbitrate but whose choice-of-law clauses specify a law more restrictive than the United States' with respect to such actions could simply elect to come to the United States whenever a basis for jurisdiction over the non-signatory defendant exists and thereby avail themselves of favorable American law.
In either case, then, Motorola is the controlling law in this case, and English law applies.
The parties did not brief the issue of piercing the corporate veil under English law other than to raise the possibility in their briefs that English law might govern this question. Although under Fed. R.Civ.P. 44.1, "[i]n determining foreign law, the court may consider any relevant material or source . . . whether or not submitted by a party or admissible under the Federal Rules of Evidence," and could therefore conduct its own foreign-law inquiry in this case, it seems more prudent to allow the parties to brief the issue of whether FR8 has adequately pleaded its veil-piercing claim under English law.
Because the question of whether FR8 has adequately pleaded its claim under English law may be dispositive, the Court declines at this time to consider defendants' motion to dismiss for forum non conveniens.
FR8 also cross-moves to compel discovery to allow it "establish the merits of its right to compel Prime to arbitrate and oppose Defendants' forum non conveniens motion." (Pl.'s Opp'n at 15.) As for discovery on the forum non conveniens motion, "it is the well established practice in the Southern District of New York to decide such motions on affidavits." Alcoa Steamship Co. v. M/V Nordic Regent, 654 F.2d 147, 158 (2d Cir.1980); see also Transunion Corp. v. PepsiCo, Inc., 811 F.2d 127, 130 (2d Cir.1987) ("Motions to dismiss for forum non conveniens may be decided on the basis of affidavits. Indeed, as the Court noted in Piper Aircraft [Co. v. Reyno, 454 U.S. 235, 258, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981)], `[r]equiring extensive investigation would defeat the purpose of [the] motion.'"). Although in some cases, courts have allowed a party to depose its adversary's foreign law expert, see, e.g., Base Metal Trading S.A. v. Russian Aluminum, No. 00 Civ. 9627(JGK)(FM), 2002 WL 987257, at *4 (S.D.N.Y. May 14, 2002), the Court in this case chooses to stick to the well-worn path of the established practice in this District. Unlike in the cases FR8 cites, there seems to be little utility in allowing discovery on the forum non conveniens issue at this point. In Base Metal Trading, for example, the foreign-law experts had "sharply differing views of the fundamental fairness of the Russian courts." Id. Here, no such "sharply differing views" are presented to the Court. Indeed, it appears that plaintiff's foreign-law expert agrees at least with the basic principles set forth by defendants' expert.
FR8 also contends that the Court should compel discovery in order to allow it to establish the merits of its right to compel Prime to arbitrate. But FR8 identifies no issues of fact that would benefit currently from compelling discovery in this case. In Dun Shipping Ltd. v. Amerada Hess Shipping Corp., 234 F.Supp.2d 291 (S.D.N.Y.2002), a case FR8 cites, limited discovery on arbitrability was useful because there was "strong disagreement among the parties as to whether Dun Shipping and/or Knock Tankers reasonably indicated to Hess Shipping that Dun Shipping was a principal." Id. at 294-95. In this case, however, no such strong factual disagreement exists. Instead, the parties seem to agree that Albacore is a corporation organized solely for the purpose of owning a single ship; the relevant question is whether that structure is susceptible to veil-piercing under the applicable law. Discovery at this point is unhelpful to that inquiry. Accordingly, the cross-motion to compel discovery is denied.
For the foregoing reasons, the Court DENIES defendant's motion to dismiss
SO ORDERED.